Postings and information from the Business Torts and Employment Litigation Committee of the New York State Bar Association's Torts, Insurance, and Compensation Law Section

September 2010 Archives

September 23, 2010

NOTICE TO THE BAR - Commercial Division Rule Change Relative to Discussion of E-Discovery at the Preliminary Conference

By an Administrative Order dated July 27, 2010, Chief Administrative Judge Ann Pfau has changed the Uniform Commercial Division Rule 1 (22 NYCRR 202.70[g][1]) to address the discussion of e-discovery at the preliminary conference.

Latest Commercial Division Law Report Now Available

The Commercial Division Law Report, issued four times per year, contains summaries of leading decisions issued by the Justices of the Commercial Division of the Supreme Court of the State of New York. The summary of each opinion in the Report is connected by hyperlink to the text of the decision. A heading preceding each summary identifies the subjects addressed in the decision.

September 15, 2010

NYSBA RECOMMENDS NEW PLEADING STANDARD IN FEDERAL LITIGATION CASES

In response to the uncertainty created by the United States Supreme Court’s recent Twombly and Iqbal decisions, and pending legislation in the United States Senate and House of Representatives, the New York State Bar Association has recommended the establishment of a new pleading standard covering actions brought in federal court that would provide enhanced notification with respect to claims against defendants and also would require the plaintiff to provide more information regarding the basis for the relief being sought. The new standard, authored by the State Bar’s Special Committee on Standards for Pleading in Federal Litigation, chaired by Samuel F. Abernethy, Esq. of New York (Menaker & Herrmann LLP), was approved at the State Bar’s House of Delegates meeting in Cooperstown on June 19.

The committee concluded that the current language of Rule 8(a)(2) of the Federal Rules of Civil Procedure requiring a pleading that states a claim for relief to contain “a short and plain statement of the claim showing that the pleader is entitled to relief,” should be amended to read “a short and plain non-conclusory statement of grounds sufficient to provide notice of (a) the claim and (b) the relief sought.” The committee also recommended that the promulgation of such a standard be accomplished through the process of review and consideration under the Standing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States.

“The primary function of a pleading is to provide adequate notice of a plaintiff’s claim to the defendant and to explain the grounds on which that claim was brought into court. Motion to dismiss should not result in the dismissal of meritorious cases before discovery has been taken,” said State Bar President Stephen P. Younger of New York (Patterson Belknap Webb & Tyler LLP). “Our proposed new pleading standard will offer protection for defendants while at the same time allowing plaintiffs the opportunity to plead sufficient and relevant factual allegations in their cases. I want to thank Samuel Abernethy and the members of the special committee for their thoughtful and timely analysis on these issues and for proposing this important standard that will help to clarify pleading in federal court litigations.”

The special committee was formed in response to two recent United States Supreme Court decisions centering on the issues of pleading in federal litigation actions: Ashcroft v. Iqbal and Bell Atl. Corp. v. Twombly.

September 13, 2010

Second Circuit Certifies Question to New York's Court of Appeals: How "Bad" Does a Seller of "Good Will" Have to Be to Violate New York's Non-Solicitation Rule?

In Bessemer Trust Co., N.A. v. Branin, 08-2462-cv(L), 08-2677-cv(XAP) (2d Cir. 2010), the Second Circuit examined New York's Mohawk doctrine, which requires a seller to refrain from soliciting former customers following the sale of the "good will" of the seller's business. See Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276 (1981).

In 2000, defendant sold his investment management firm (and good will) to another investment management firm. After the sale, the seller remained as an employee of the purchaser but later left and joined a competitor. While he did not contact his former clients directly prior to departing, he did respond to their inquiries as to his status. He also participated in meetings with at least one client and helped craft his new firm's strategy for soliciting that client's business. When that client and several others stopped doing business with the purchaser, the purchaser brought suit alleging that defendant improperly solicited his former clients in violation of New York law.

After a bench trial, the district court determined that defendant improperly solicited one client but found insufficient evidence of improper solicitation with respect to the others. After a second trial on damages, the district court adopted a "return on capital" measure of damages rather than the "lost profits" measure of damages sought by plaintiff and awarded plaintiff $1,229,173.20 in damages and pre-judgment interest.

On appeal, the Second Circuit reviewed the Mohawk doctrine and noted that, under New York common law, "the right acquired by a purchaser of the 'good will' of a business is a permanent one and is not subject to divestiture upon the passage of a reasonable period of time, since there is a continuing duty upon the seller imposed by law in order to prevent the seller from taking back that which he has purported to sell." The Second Circuit also noted, however, that "this duty of the seller not to solicit customers does not. . . include an obligation not to accept such of his former customers as may choose to follow him to his new employment." So long as the client's decision to follow the seller did not come about through "improper solicitation", the law is not violated and the lost account should not be considered in determining damages.

Here, the evidence showed that defendant took actions to solicit one of his former clients and to frustrate plaintiff's ability to retain that client. The Second Circuit found that New York law was not clear on whether defendant's actions constituted "improper solicitation", however, and certified questions to the New York Court of Appeals regarding the degree of participation necessary to constitute "improper solicitation":

What degree of participation in a new employer's solicitation of a former employer's client by a voluntary seller of that client's good will constitutes improper solicitation? We are particularly interested in how the following two sets of circumstances influence this analysis:

(1) the active development and participation by the seller, in response to inquiries from a former client whose good will the seller has voluntarily sold to a third party, in a plan whereby others at the seller's new company solicit the client, and

(2) participation by the seller in solicitation meetings where the seller's role is largely passive.

September 3, 2010

TICL Journal Wants Your Articles

The Torts Insurance and Compensation Law Journal is accepting submissions for the next Journal. We are targeting a publication date of January of 2011. If you are interested in having an article published, please submit it by October 15, 2010 in a Word format to David Glazer at dglazer@shaferglazer.com